Since the economic crisis of 1997-1998, Korean banks' lending to small and medium enterprise (hereafter SME) has increased far more rapidly than expected. These facts would seem to indicate that there has been a great deal of fundamental change in the SME lending market in Korea. If the sudden increase in SME lending was not attended by means of obtaining good quality credit information about SMEs, there very well could be a significant increase in bad assets at financial institutions.
The objective of this paper is to find evidence that Korean banks are effectively handle lending to SMEs despite the serious lack of good quality credit information on them. For this purpose, the core ability to execute SME lending properly must be ascertained in the context of badly restricted information on the credit-worthiness of SMEs. Following Berger and Udell (2002), 'relationship lending' is one of the most powerful means available to reduce information asymmetries in small firm finance.
In this paper, I investigate the state of 'relationship lending' in SME financing through the empirical analysis of survey data obtained from Kookmin bank's 1999 Survey of small and medium industries' financial standing. Kookmin bank's Survey of small and medium industries' financial standing contains a wealth of information on the relationships between SMEs and their lenders. For example, it indicates the use of financial services by SMEs, the number of sources for financial services, firm age, firm size, and the number of employee, etc.
I find that a potential lender is more likely to extend credit to a firm with which it has had a pre-existing relationships, but the change in likelihood was found to be statistically insignificant when the size variable such as asset size was incorporated. I also find that firms of younger age and those with multiple sources of financial services are more likely to receive credit. In general, my results do not provide empirical support for the theory that long-term relationship between an SME and its lender can generate the valuable private information needed to overcome the opaqueness of SME.
The cause of this discrepancy between the relationship lending theory and the realities of SME lending in Korea can be explained by Korean banks' excessive dependence on the public guarantee funds and the collateral on the property in executing SME lending. This discrepancy also can be interpreted that the Korean banks' capacities to handle the SME lending properly without use of outside credit guarantee instruments is extremely low, and the quality of loans to SME might also be very low to the point that such outside help may not be very meaningful. It is my great apprehension that aggressive promotion of lending to SMEs without essential capacities to handle it will lead to the accumulation of bad assets on a large scale in the near future.
중소기업금융의 현황과 과제(Relationship lending in SME financing)
관계형 금융을 중심으로
[서울] : 한국금융연구원
|Series Title; No||금융조사보고서 / 2003-07|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Financial Policy|
|Holding||한국금융연구원; KDI 국제정책대학원|